Rebirth

The Tiananmen debacle resulted in a brief spell of conservatism, but within a few years, Deng Xiaoping choreographed the rebirth of reform and openness with his historic “southern tour.” With Deng’s assurance that “to get rich is glorious,” entrepreneurial energy exploded again, concentrated now in the coastal cities. The leadership, guided by economic czar Zhu Rongji, enacted a far-reaching structural transformation of the economic sphere, anchored in privatization of state-owned enterprises. Ironically, China’s lack of full reform—especially in the financial sector and monetary policy—protected the Chinese economy from the vicissitudes of hot money and capital flight that ravaged its neighbors during the East Asian financial crisis.

Deng Accepted That There Were Limits to His Expertise

Changing China's Market Framework

China's Opacity Protected it from Crisis

Entrepreneurship Was a Key to China's Boom

Stephen Roach

Chairman, Morgan Stanley Asia

Stephen S. Roach is chairman of Morgan Stanley Asia, a leading global financial services firm. Previously, he was managing director and chief economist of Morgan Stanley. Before joining Morgan Stanley in 1982, Roach was vice president for economic analysis for the Morgan Guaranty Trust Company in New York. He also served on the research staff of the Federal Reserve Board in Washington, D.C. from 1972-79, where he supervised the preparation of the official Federal Reserve projections of the U.S. economy. Prior to that, he was a research fellow at the Brookings Institution in Washington, DC.

Roach is widely recognized as one of Wall Street’s most influential economists. His research covers a broad range of topics, with recent emphasis on globalization, the emergence of China, productivity and the macro paybacks of information technology. His work has appeared in academic journals, books, congressional testimony and on the op-ed pages of The Financial Times, The New York Times, The Washington Post and The Wall Street Journal. Roach holds a Ph.D. in Economics from New York University and a BA in Economics from the University of Wisconsin.

I'm an economist by training and for 25 years headed up Morgan Stanley's Global Economics Team. And it was probably the Asian financial crisis of '97-'98, when the region that was supposed to be the new miracle for the global economy was in shambles, and our economics team, like most, we were just behind the curve, we had no idea what was going on. We were marking our forecast for Asia and for the global economy down by a significant amount literally every week and one of these sparkling gems after another toppled: Thailand, Korea, Indonesia, Hong Kong. You name it, it was in trouble and it quickly became evident to me that China would hold the key to the endgame. I don't know why I thought that, but I felt it in my gut. That if China went the way of Thailand, Indonesia, Korea, who's to say what would stop this crisis? So, I'd been to China a few times before the late 90s, but in '97, I just was determined to bore into China and started going there every other month. And it became evident to me very, very quickly that China was cut from a totally different cloth than the rest of Asia, that it was not going to go down the road of currency devaluation, reserve depletion, going to the IMF for adjustment assistance. That China was going to stand on its own, hold the line on the currency, actually accelerate the pace of many of its reforms and use its large saving as a reservoir to stimulate counter-cyclical fiscal spending. So, I got really hooked on China, saw what they did, and I think, to this day, their actions were decisive in arresting a very powerful pan-regional contagion.